MAN KEUNG CO. LTD. v. PROSPERITY MACHINERY MANUFACTURERS LTD.

HCA 12158/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12158 OF 1997

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J U D G M E N T

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1. This is a claim by the Plaintiff for the price of goods sold and delivered. The Plaintiff claimed that the Defendant failed to pay the price under 2 purchase orders out of 3. On top of that the Plaintiff also claimed that the Defendant had failed to pay the price for goods sold and delivered under 6 other invoices. There is no dispute that all the goods were delivered. In respect of the Plaintiff's claim under the 6 invoices there is no dispute arising out of those claims at all. The defence to those claims was that there were certain part payments of some of the goods and there was also the defence of set off and counterclaim arising out of the transactions of the 3 purchase orders. In respect of the 3 purchase orders, I will hereinafter call the contracts relating to these purchase orders as the 1st, 2nd and 3rd contracts in the order of their dates.

2. It is common ground that of the 3 contracts, 2 of them, i.e. the first and the second ones were evidenced by purchase orders issued by the Defendant. Also after the goods were delivered, the Plaintiff also issued invoices to evidence the contracts. However, there is a dispute between the parties as to how the contracts were made. The Plaintiff's case is that the contracts were evidenced by the Defendant's order while the Defendant's case is that the contracts were made partly oral and partly in writing. The purchase orders issued by the Defendant were merely part of the contract. In relation to the 3rd order, it was common ground that the contract was made orally and was evidenced by an invoice issued by the Plaintiff after the goods were delivered.

3. The issue on how the contracts were made had important bearing on the issue of whether there was any term in the contract to the effect that the goods must meet the British Standard and that the Plaintiff was obliged to supply the Defendant with certificates showing that the goods supplied would meet the requirements of British Standard.

4. The Plaintiff's case is that although before the orders were placed by the Defendant, there were some oral discussions between the Plaintiff and the Defendant, the terms of the contract in relation to the first 2 contracts were set out in the Defendant's purchase orders. Since there was no term in the purchase orders to the effect that the goods supplied must meet certain British Standard let alone any obligation on the part of the Plaintiff to supply any document to prove that the goods supplied would meet the British Standard, the goods having been delivered and accepted, the Defendant is liable to pay the price of the goods. In relation to the 3rd contract, the Plaintiff's case is that the order was placed orally by the Defendant without any specification as to the meeting of or compliance with British Standard, and again the goods having been supplied and accepted, the Defendant is liable to pay the price.

5. The Defendant's case however is that each of the contracts was subject to a term that the goods supplied must be of the British Standard and that there was a term requiring the Plaintiff to supply the Defendant a BASEC certificate (British Approval Service for Cables Product Certificate) to show that the goods would meet the British Standard. In the alternative to the BASEC certificate, the Defendant averred that there was a term that the Plaintiff must provide upon the request of the Defendant or the Defendant's user, documentary evidence or the technical data of the cable supplied for the purpose of proving conformity to the British Standard. The Plaintiff did not supply goods of the British Standard and had failed to provide any certificate or documentary evidence to show that the goods supplied were of the British Standard, hence the Plaintiff was in breach of the contracts. Alternatively the Defendant's case is that in respect of each of the contracts, there was a collateral contract whereby in consideration of the Defendant's entering into the contract with the Plaintiff, the Plaintiff agreed that the goods supplied under the contract must be of the British Standard and that the Plaintiff would supply a BASEC certificate to show that the goods complied with the British Standard. And yet another alternative case of the Defendant is that there was a representation on the part of the Plaintiff that the goods supplied under the 2nd and 3rd contracts were made by one Irish factory, and there was a misrepresentation which entitled the Defendant to rescind the contracts. It is the Defendant's case that by reason of the Plaintiff's breach of the contracts or the collateral contract or by reason of the Plaintiff's misrepresentation, the Defendant was entitled to rescind the contracts and did so in October 1977 by their solicitor's letter. There was also a claim of damages resulting from the Plaintiff's breach of contracts and misrepresentation. However, in an earlier hearing before Deputy Judge Longley, there was a consent order whereby the issue on the quantum of the loss and damages suffered by the Defendant on its counterclaim would be determined by a master after the determination of the liability.

6. It is common ground before me that the goods supplied were made in China. Also before me, the Defendant through its Counsel confirmed that the Defendant would not be pursuing the claim that the goods supplied did not meet the British Standard. The Defendant would confine its case on the breach of the obligation to provide the BASEC certificates or written evidence that the goods were of the British Standard.

7. In relation to the price of the goods under the 6 other invoices, during the course of the hearing, the parties had reached agreement as to the amount due and owing under these invoices. The parties had agreed that after taking into account all part payments or deposits (where appropriate), the following amounts were due under these invoices:

Group A:
	Invoice no. 43646 dated 25 May 1997	$	27,630.00
	Invoice no. 45045 dated 6 June 1997	$	16,480.00
	Invoice no. 46353 dated 20 June 1997	$	1,630.00
Group B:
	Invoice no. 45942 dated 21 June 1997	$	20,800.00
	Invoice no. 43275 dated 16 May 1997	$	900.00
	Invoice no. 43268 dated 16 May 1997	$	26,600.00

8. The parties also agreed that in relation to the invoices under Group A, the Defendant would be liable to pay the amount set out above in any event. However, in relation to the invoices under Group B, the parties agreed that the amount set out above would be subject to the defence of set off and counterclaim if I should hold that the Defendant's counterclaim under the 3 contracts should succeed.

9. Mr Chu, the Managing Director of the Plaintiff was the only witness for the Plaintiff. He told me that the Defendant company was introduced to him by one Miss Mo of Nam Hing, another supplier of electric cable. Nam Hing had a factory making cable in Hong Kong. However, Miss Mo told Mr Chu that the Defendant would like to have cables for use in China and was interested in having cables made in China so as to obviate the necessity of having an import licence to import cable into China. Miss Mo told him to contact Ms Chan of the Defendant. According to Miss Mo, Ms Chan was the person in the Defendant company who took charge of placing orders. Mr Chu said that he then had a brief meeting with Ms Chan at her office in Castle Peak Road. He exchanged cards with her. He left Ms Chan with 2 price lists of the cables. These 2 price lists were dated 3 March 1997 and 6 November 1996 respectively. The one dated 6 November 1996 had the words "Old Price" written there by Mr Chu. The 2 price lists were in fact those of SGH Electric Wire & Cable Ltd. (hereinafter called "SGH"). The Plaintiff had been selling products of SGH for quite a long time. SGH had a factory in Shenzhen making cables. According to Mr Chu it would be normal for SGH to supply him with new price list setting out the new prices which would come into effect sometime later. Hence, there was the need of supplying to the Defendant the 2 price lists. The meeting did not touch on anything specific. It was very much a courtesy meeting as a foundation for future business.

10. According to Mr Chu, sometime in late April 1997 he had a telephone conversation with Ms Chan. During this conversation Ms Chan asked him about the prices of various kinds of cables including "400 mm XLP/PVC" cable which was not in the price lists. He then made out a quotation and faxed the same to Ms Chan on 1 May 1997. The quotation originally covered 2 types of cables, viz. "400 mm PVC/PVC" cable with a diameter of 35.2 mm at the unit price of $105.00 per meter, and also "400 mm XLPE/PVC" cable at the unit price of $117.00 per meter. On top of that, there was also the quotation of the transportation charges of $400.00 per ton. The quotation also specified that the time for delivery was within 6 days from the day of the Order. Below the item providing for delivery time, there was another item added to the quotation, being a quote for "120 mm cable" at $34.00 per meter. There was no dispute that this quotation was faxed to Ms Chan of the Defendant. Later on, on 8 May 1997, Ms Chan faxed to him a purchase order which covered the following goods:

(a) 4,600 meters of 400 [square mm] XLPE/PVC single core double insulation cable (white) to be in 10 rolls of 460 meters each. The external diameter being 35.3 mm, at $117.00 per meter.

(b) meters of 120 [square mm] single core single insulation yellow and green earth line cable in one roll at a unit price of $34.00.

11. The purchase order also specified that the transportation charges of $5,000.00 were to be added. In relation to delivery, the purchase order specified that it must not be later than 5 days (i.e. the goods must be delivered by 13 May 1997). The place for delivery was at Dong Guan. On the payment terms, the purchase order provided that 30% at HK$166,020.00 was to be paid first and the balance to be paid in 30 days after delivery. There was no dispute that this purchase order was faxed to the Plaintiff sometime about its date, although for some unknown reasons the one included in the bundle before me bore a fax header showing that it was faxed out by the Defendant company on 9 September 1997 at 13:00 hours. The terms of the purchase order were acceptable to Mr Chu and apparently he accepted the order by simply delivering the goods ordered to Dong Guan promptly on 13 May 1997. The goods were paid by a cheque in the sum of $166,020.00 on 10 May 1997 and by another cheque in the sum of $387,380.00 on 11 June 1997.

12. According to Mr Chu after the goods under the 1st contract were delivered, Ms Yung [Oong] of the Defendant called him asking him about the voltage and current information of the 400 mm XLPE/PVC cables. Amongst the information she requested was the maximum hot current of the cables and whether they could withstand 90℃ etc. He was unable to furnish the information requested by Ms Oong and he tried to obtain the information from the supplier of the cables, SGH, but again they were not able to give him the information. Later on he realised that there was some information available in his own company relating to the current and performance of cables published by Irish Cable. He then had a telephone conversation with Ms Oong telling her that he would be able to give her some information about the cables but the information was in relation to cables of another company. He also told Ms Oong that the goods he supplied were made in Shenzhen. He then faxed the information contained in pages 70 to 72 of the agreed bundle of documents (hereinafter called the "current rating document") to Ms Oong. In fact these pages were taken out from information supplied by Irish Cable, another cable manufacturer who made cables complying with British Standard. These pages contained tables showing the maximum current ratings of single core, two-core, three-core and four-core armoured and unarmoured cables of different sizes with different ways of touching, running in single-way ducts, laid in ground and installed in air.

13. Mr Chu further confirmed that on or about 28 May 1997 he also received another purchase order dated 28 May 1997 for the purchase of 500 meters of red XLPE/PVC white single core double insulation cable (conductor red and outer sheath white) with outside diameter of 35.2 mm in one roll at a unit price of HK$117.00 per meter. Again it was stipulated that the goods were to be delivered in 5 days (by 3 June 1997) directly to Dong Guan. There was nothing specified relating to payment terms. Again it was common ground that this purchase order was issued by Ms Chan of the Defendant on or about 28 May 1997. But again for some unknown reason, the copy discovered by the Plaintiff indicated that there was a fax header showing that the same was faxed out by the Defendant on 9 September 1997 at 13:00 hours, apparently together with the one relating to the first contract. The goods were duly delivered to Dong Guan on 2 June 1997 but they were never paid for.

14. Again it was not in dispute that on or about 12 June 1997 there was a telephone conversation between Ms Chan and Mr Chu. During this conversation Ms Chan further ordered 1,380 meters of cables of the same description as in the 1st and 2nd contracts. According to Mr Chu, Ms Chan simply asked for the same cables as supplied before. Mr Chu made out an invoice relating to this order. The items of goods were included in an invoice No. 45572 dated 12 June 1997 which also covered other items of goods which had nothing to do with this action and in respect of which there was no dispute. Relating to the subject goods, this invoice described the goods just as "400 mm single core double insulation cables, each barrel 460 meter x 3 barrels". The goods were delivered to Dong Guan on 17 June 1997.

15. According to Mr Chu before he sent out his quotation on 1 May 1997 he had a number of telephone conversations with Ms Chan who asked him about the price of various kinds of cables. He was also told by Ms Chan that if she had decided to buy any, she would issue a purchase order. He was adamant that he did not speak to Ms Oong at all before the 1st contract. He was also adamant that in all these conversations, there was never any mention by Ms Chan that the cables required must meet the British Standard or that he was required to produce any certificate to show that the goods were of the British Standard.

16. According to Mr Chu on or about 14 or 15 June 1997, he spoke to Ms Oong over the phone, and for the first time, he was told by Ms Oong that she wanted a certificate to show that the goods supplied were of the British Standard. He told Ms Oong that the purchase order set out all the requirements of the goods and there was no British Standard requirement. He also told Ms Oong that the goods were made in China and there was no certificate to show that they were of British Standard. However, he also contacted his supplier who supplied to him with a certificate showing that the goods made by them were in compliance with the relevant Chinese regulations. In order to assist the Defendant he faxed a copy of this certificate (hereinafter called the "Chinese Certificate") he received from his supplier SGH to the Defendant.

17. It was also common ground that on or about 16 June 1997 the Plaintiff on 2 occasions faxed a price list of SGH, both bearing a date of 6 March 1997, to the Defendant. However, one of them also had the Plaintiff's name stated on the price list. According to Mr Chu this was done by his employees as a matter of business promotion, intending to update their customers on price information. Thus, he denied any suggestion that the sending of the price list on 16 June 1997 was an attempt made by him to convince the Defendant that the XLPE/PVC cables supplied under the 3 contracts were of the British Standard. However, he did not give any explanation as to why this price list had to be sent twice, nor did he explain why, having supplied the Defendant with this same price list earlier in the year, his employee would still see the need of sending the price list again.

18. Mr Chu also said that on or about 16 or 17 June 1997, he was informed by Ms Oong that if there was no evidence to show that the XLPE/PVC cables were of British Standard then the Defendant's customer, the user of the cable would not pay for the cable and the Defendant would not pay the Plaintiff. He said that Ms Oong suggested to him that he could make out a certain document according to a form suggested by her to show that the goods were of British Standard. The suggestion was that the Plaintiff was to made out a false document to show that the manufacturer had stated that the XLPE/PVC cables supplied were of the relevant British Standard to enable the Defendant to obtain payment from its customer and then the Defendant would pay the Plaintiff. At first Mr Chu did not agree to such suggestion but eventually under the threat and inducement that the Defendant would not pay for the goods unless the document was issued, he agreed to the proposal. It was common ground that on 17 June 1997, Ms Oong faxed to the Plaintiff the following format letter:

"Prosperity Machinery Manufacturers Ltd.
3/F 483 E Castle Peak Road,
Kowloon, Hong Kong.

We, SGH ELECTRIC WIRE & CABLE LTD, declare that our XLPE and PVC cables, comply to BS5467 and BS6346."

19. Upon receipt of the fax from Ms Oong, Mr Chu sent it to the Plaintiff's auditor for a translation of the contents. He then asked his other folkis to make out the document. After the document was completed the same was taken to the Defendant's office at Castle Peak Road. However, the Plaintiff's staff was told that the document should be taken to Kwun Tong for Ms Oong. Hence, eventually the document was delivered to Ms Oong at Kwun Tong. The document as now produced before me was in the following terms:

"NO. 1 BLOCK INDUSTRIAL AREA, SALT TIN,
TUN HOU LING, SHA TAU KOK

Prosperity Machinery Manufacturers Ltd.
3/F 483 E Castle Peak Road,
Kowloon, Hong Kong.

We, SGH ELECTRIC WIRE & CABLE CO., LTD, declare that
Our XLPE and PVC cables comply to BS5467 and BS6346.

[chop of Wing Tai Electric company]

	Sd Michal Lai
	19-6-97"

20. As to the address stated on this document, Mr Chu's evidence was that he called Ms Chan telling her that Ms Oong told him to make out a false certificate. He told Ms Chan that he had to have an address of the issuer of the certificate and asked Ms Chan for such address. Accordingly Ms Chan faxed to him an address on 19 June 1997 "沙头角鹽田根斗嶺工業区第一幢".

21. From about mid June 1997, Mr Chu agreed that one Mr Lam of the Defendant also called him to ask for the certificate to show that the goods were of British Standard.

22. The Defendant called both Ms Oong and Ms Chan to give evidence.

23. According to Ms Oong, she was an assistant to Mr Oong on a project of setting up a power generating plant in Dong Guan, China. While there must be a contract between the Defendant and the end user of the power plant, Ms Oong had no idea as to its terms. Certainly that contract had not been produced in the trial. One of her duties was to procure the supply of generator and cables required for the project. Ms Oong was the person who informed the generator manufacturer that it had to comply with British Standard. In mid April, she tried to contact a number of suppliers requesting for quotation and information relating to the supply of single core XLPE unarmed 400 square mm cables complying with British Standard. At the relevant time, the up to date British Standard for such product was BS5467 of 1989. She said in relation to each of the suppliers, she had made it clear that she wanted to make sure that the goods supplied must come with their product specifications, including current rating and voltage drop and also there must be a BASEC certificate to come with the goods. The goods must comply with the British Standard. She contacted about half a dozen suppliers including the Plaintiff. She got the name of the Plaintiff from the yellow page telephone directory.

24. Ms Oong said that every supplier she contacted told her that they could supply cables of 400 square mm cross section area with XLPE insulation complying with British Standard. She said that in respect of each supplier she asked for their catalogues. The Plaintiff sent by post the 2 price lists of SGH to the Defendant's office at Castle Peak Road. As Ms Oong's office was not at Castle Peak Road, the staff there sent her the 2 price lists by fax. After she got the fax, she called the Plaintiff and spoke to Mr Chu again. She pointed out to Mr Chu that the price lists she received were about PVC cables only, and she asked if the Plaintiff could supply XLPE cables. Mr Chu confirmed that the Plaintiff could supply XLPE cables and Ms Oong then asked whether the cables supplied would meet the British Standard. Mr Chu then said that he could supply XLPE cables meeting British Standard, and Mr Chu then asked her if the Defendant would require cables of any specific brand name. She then told Mr Chu that to the Defendant, the brand name was not important but they must comply with the British Standard. Mr Chu then told her that he had a supplier who could make cables complying with British Standard. He told her that he had supplied the same type of cable to customer for use in conjunction with power generator before. He said to her that the Plaintiff had been in the business for the supply of cables for many years and that if she was not happy with the cables, he would take them back. She also said to Mr Chu that she had done some research based on the IEE (International Electrical Engineering) Regulations and according to this IEE, the cables required by her should be XLPE cables complying with the relevant up to date British Standard being BS5467 of 1989. Mr Chu told her that he understood these regulations. She again summarised her requirements to Mr Chu, telling him that she wanted (a) 400 square mm XLPE cable single core unarmed complying with BS5467 of 1989; (b) she also required the product specifications, including the current rating and voltage drop; and also (c) there must be a BASEC certificate showing that the cables complied with the relevant British Standard. Mr Chu told her that there was no problem for him to supply the cable to her requirements. Ms Oong asked Mr Chu to give a quotation for 4,600 meters of such cables, and Mr Chu said that he needed some time to work out the price and would come back to the Defendant.

25. She said that it was the policy of the Defendant that goods could only be ordered by certain authorised persons. As she had to take care of other matters she asked Ms Chan who was one of the persons authorized to place orders to follow up. In early May, she was told by Ms Chan that the Defendant received a quotation from the Plaintiff. She received a faxed copy of the quotation of 1 May 1997 sent by the Plaintiff to Ms Chan. She noticed that in the quotation there was the statement that the goods could be delivered within a few days and also the transportation charges. She called Mr Chu again and asked him whether the cables he quoted were the same as those they discussed before. Mr Chu confirmed that they were the same one and she also asked Mr Chu whether he could commit the Plaintiff to the delivery date. She also asked him about the payment terms and Mr Chu told her that the Plaintiff could agree to 30% down payment and the balance to be paid within 30 days of delivery.

26. Ms Oong said that she then compared the terms offered by the Plaintiff with those she obtained from other suppliers. The Plaintiff's promise to deliver within 6 days and the 30-days credit terms was attractive. So she asked Ms Chan to place the orders with the Plaintiff. She said that when she did so, she again told Ms Chan to remind the Plaintiff that it was important that the cable would comply with the standard required by the Defendant and that it was important that the cable would come with the BASEC certificate. She was aware of the placing of the order but she did not actually see the purchase order before the same was sent out to the Plaintiff.

27. Ms Oong also said that after the 1st contract, she also had a discussion with Mr Chu about the purchase of cable lugs. It was vaguely suggested by her that the cable lugs ordered were also to be in compliance with the British Standard. However, as these cable lugs did not form the subject matter of this action, there was no investigation on the details as to the exact terms of the contract for the order of these cable lugs.

28. According to Ms Oong, she called the office at Dong Guan between 15 and 16 May 1997. She was informed that the cable ordered under the 1st contract had arrived. She was however told that there was no marking on the cable and there was no certificate or anything giving the product information of the cable. On or about 20 May 1997, she called Mr Chu. She asked him whether the cable delivered would meet the requirements they discussed in April, and she told Mr Chu that if there were to be any problems she would like to know it up front then. She said that Mr Chu confirmed with her that he remembered the conversation between them and that the goods met the requirements. She again reminded Mr Chu that he would still have to deliver the BASEC certificate and she also told him that she wanted all the product information, the current rating and the voltage drop.

29. As a result of the conversation between her and Mr Chu, on 22 May 1997, she received the 3 pages of the current rating document. After she got the 3 pages she read them. She thought that she could make use of the information for the installation purposes. She then decided to ask Ms Chan to place the 2nd order for 500 meters more of the same cable. She said that later on the Defendant had changed its mind so that instead of installing the cable by stages, it was decided to install all the required cable at the same time. Hence, there was a need to order some more cable. This was the reason for the placing of the 3rd order. The quantity of the cable ordered was based on calculation which in turn was based on the current rating information contained in the 3 pages current rating document she received on 22 May 1997. Again it was common ground that she did not herself place the order. The purchase order in relation to the 2nd contract was made out and sent by Ms Chan and also the 3rd order was also placed orally by Ms Chan.

30. It is to be noted that the 3 pages current rating document faxed on 22 May 1997 did not contain any information on voltage drop. According to Ms Oong, the Defendant realised that the 3 pages in fact came from the information published by Irish Cable, hence the Defendant made use of the voltage drop information published by Irish Cable for their design and installation purposes. According to Ms Oong, Mr Chu of the Plaintiff did not provide any voltage drop information until sometime in July. Meanwhile she called Mr Chu almost every day or every other day chasing for the voltage drop information and also the BASEC certificate. Although the Defendant meanwhile had worked on the basis of information published by Irish Cable, Ms Oong said she was still concerned for the lack of the BASEC certificate. She said that on or about 14 or 15 June 1997 she called Mr Chu telling him that she would need the BASEC certificate to show that the cable received by the Defendant did meet the British Standard. She also said that her major concern was that the cable received did not contain any marking to indicate its product information at all. She said that out of the blue, she received by fax the Chinese Certificate.

31. After she got the Chinese Certificate, she called Mr Chu of the Plaintiff. She said to Mr Chu that all along, he promised that the cable was of British Standard. She queried about the reason for sending her the Chinese Certificate. She told Mr Chu that if the goods only complied with the Chinese Standard then she could not accept it. According to her, Mr Chu asked her not to worry and that he could prove that the goods were in compliance with the British Standard. Her evidence was that in the same afternoon, she received by fax the 2 copy price lists of SGH, both bearing the date of 3 March 1997.

32. Ms Oong's evidence was that what she received certainly did not even begin to prove that the cables complied with the British Standard. Hence on 17 June 1997 she called Mr Chu. She said to Mr Chu that he had told her that the cable ordered complied with British Standard but the information he just provided her was information that she had before and it did not prove that the cable supplied was of British Standard. She further said to Mr Chu that if in fact the cable was of British Standard, he would have to provide her with a statement that the XLPE cable complied with the British Standard. According to her, Mr Chu then asked to her to write down what she wanted and he could then turn it over to the manufacturer and ask the manufacturer to make the statement she wanted. In pursuance of such request, she drafted the SGH declaration statement and faxed it over to the Plaintiff on 17 June 1997.

33. Ms Oong said that a few days later she received a call from a staff of the Defendant saying that the Plaintiff had delivered something for her at the Castle Peak Office. The Plaintiff's messenger would not leave the envelope behind. Accordingly she called Mr Chu and told him to arrange for the delivery of the letter to her at a certain warehouse address in Kwun Tong. After she got the letter, she saw the contents, but she found that the company name at the letter head had no telephone and fax numbers, and it was not a proper letter head. According to her, Mr Chu then said he could make up the lacking information, but she told Mr Chu not to waste his time and that he should really use the time to get her the documents she needed instead.

34. One or two days later, she received by fax a document under the heading of "Schedule of Certified Cables". However, the fax header of this document produced indicated that the same was sent by the fax machine of the Defendant on 28 June 1997. The evidence of Ms Oong was that when she received this fax document she called Mr Chu again. She told Mr Chu to stop playing games, and that she knew what a BASEC certificate was like and what was faxed to her was not the BASEC certificate she wanted.

35. In early July, Ms Oong said that she received some voltage drop information from the Plaintiff but by then the cable was already installed. Further, the information received was those published by Irish Cable.

36. She left the project and one Mr Lam took over at the end of July 1997. There was never any genuine BASEC certificate forthcoming. Eventually the Defendant had to take out the cable installed and replaced by cable purchased from another company in Hong Kong. This replacement cable was from stock available in Hong Kong and the necessary import licence for this replacement cable was supplied by the end user.

37. In cross examination she agreed that she was not really interested in whether the cable supplied was in fact made by Irish Cable so long as the product information provided by the Plaintiff was accurate and that the same would meet the British Standard. She also confirmed in cross examination that she knew that the product sold to the Defendant was not the product of Irish Cable, but she thought that it was of the same standard as those made by Irish Cable.

38. Ms Chan Lai Nga also gave evidence for the Defendant. She was in charge of ordering goods and arranging for their delivery. However, she was not the person within the Defendant who made the decision as to what to buy. Usually the staff at the Engineering Department would source the goods and decide whether the goods were suitable for the Defendant's purpose and would make the decision as to whether the goods should be purchased. They would then tell her about the goods and she would place the order.

39. In relation to the Plaintiff, she said that she came to know the Plaintiff through the introduction of Ms Mo of Nam Hing in 1996. She disagreed that Mr Chu of the Plaintiff made a personal call to her in 1997 when Nam Hing introduced the Plaintiff to her. She said that the Plaintiff was introduced to the Defendant because Nam Hing was moving to China, and it was not the case as suggested by Mr Chu that the Defendant would require cables to be supplied in China which Nam Hing would find it inconvenient to supply because of the requirement of import licence. She said that in fact there was business done between the Plaintiff and the Defendant in 1996. It was a small order and Mr Chu came to collect payment after the delivery. There were in fact a few orders before the subject transactions in this action. However, there was no document concerning the earlier transactions either produced or discovered in this action.

40. She said that in April 1997 Ms Oong told her that she had contacted Mr Chu of the Plaintiff about the purchase by the Defendant of 400 mm XLPE/PVC and 400 PVC/PVC cables. She then contacted Mr Chu of the Plaintiff and asked him to send a quotation to the Defendant. She also told Mr Chu that Ms Oong had already spoken to him about the 400 mm XLPE/PVC and 400 mm PVC/PVC cables, and she also told Mr Chu that the Defendant wanted cables complying with the British Standard and that the Plaintiff was also to supply the certificate to certify that the goods were in compliance with the British Standard. According to her, Mr Chu told her that the Plaintiff would be able to supply the required cables with the certificates. She then received the quotation of 1 May 1997 by fax and upon getting that quotation, she faxed the same to Ms Oong for her to confirm whether the Defendant should order the cables. According to her, Ms Oong told her that because the Plaintiff could supply cable complying with the British Standard and also the necessary certificate and the price was acceptable she was to issue a purchase order to the Plaintiff for the purchase of 4,600 meters of 400 mm XLPE/PVC cables. She was also told by Ms Oong that the cable was to deliver to Dong Guan. She was told the address for delivery and also the date of delivery required by the Defendant. She was also told by Ms Oong that the Plaintiff had agreed to accept 30% deposit with the balance to be paid in 30 days after delivery.

41. When she was asked as to why she did not put in any terms about British Standard in her purchase order, she said that she did not mention it in the purchase order because she had been told by Ms Oong that the Plaintiff had agreed with her over the phone to supply cable of the British Standard and had also promised to supply the necessary certificate. Furthermore, during the telephone conversation between her and Mr Chu she also mentioned to Mr Chu that the Defendant wanted cable complying with the British Standard and the Defendant also wanted to have the certificate to show compliance with the British Standard. In short, her evidence appeared to be that since there were discussions between the parties and promises made by Plaintiff to supply goods complying with the British Standard and also the certificate to show the compliance, she did not think it necessary to have any stipulation concerning British Standard in the purchase order.

42. The 1st order in fact covered other items of goods, viz. 300 meters of 120 square mm single core yellow and green earth cable. According to Ms Chan she included this item in the same purchase order because this 120 square mm cable was required by a different engineer who asked her to place order for the same.

43. Ms Chan confirmed that she was aware of the delivery of the goods under the 1st contract and that she had been told that there was no certificate supplied with the goods.

44. In relation to the 2nd purchase order she placed, she said that she placed the order because Ms Oong had asked her to do so. Before she placed the 2nd purchase order, she spoke to Mr Chu on the phone. She told Mr Chu that the goods under the 1st contract did not come with the certificate, and she was told by Mr Chu that the certificate would be delivered in due course and that he had spoken to Ms Oong about this. Also before she issued the 2nd purchase order she also told Mr Chu that the Defendant wanted goods complying with the British Standard and also the certificate to prove compliance.

45. She confirmed that when she was asked to place the 2nd order, Ms Oong told her that she should contact Mr Chu and issue a purchase order for the purchase of 500 meters of 400mm XLPE/PVC cable that should comply with the British Standard and also with a certificate to show compliance, and the goods were also to be delivered to Dong Guan and that the Defendant was to have 30 days to make payment. Again when being asked about why there was no mention of anything concerning the British Standard in the 2nd purchase order her answer was that she did not think it necessary to mention about the British Standard because Mr Chu said to her that he could supply goods of British Standard with the certificate, and that Mr Chu had never mentioned that he could not supply goods of the British Standard and also the certificate.

46. In relation to the 3rd purchase order she also confirmed that she placed the 3rd order orally over the phone with Mr Chu of the Plaintiff. She did so because she was told by Ms Oong to place the order for 1,380 meters of 400mm XLPE/PVC cables. After she received the instructions from Ms Oong she spoke to Mr Chu. She told him that Ms Oong had already discussed with him about the description of the cable and that the goods should comply with the British Standard and also there should be a certificate to show compliance, and that the place for delivery should be Dong Guan.

47. Ms Chan confirmed that her role in this transaction was merely to place the order in accordance with the directions of Ms Oong. She was not the person in the Defendant company to decide whether the Defendant would require the goods, nor was she in charge of the payment of the goods. However, she was aware that as a result of the Plaintiff not supplying the certificate to show compliance with the British Standard, the Defendant had withheld payment for goods and she was also aware that Mr Chu had visited the Defendant's premises at Castle Peak Road to discuss with Ms Oong about the matter.

48. She agreed that on 19 June 1997, she did write down the address of "沙头角鹽田根斗嶺工業区第一幢" and faxed the same to the Plaintiff. According to her the address was not supplied to the Plaintiff for the purpose of making up a false certificate to show the goods were of British Standard. She faxed this address to the Plaintiff because the Defendant had placed an order for some items of accessories with the Plaintiff and would like the Plaintiff to deliver the goods to this address. In the end the Plaintiff did not agree to deliver the goods to this address and the Defendant agreed that the goods could be delivered to the Defendant's address in Hong Kong instead. The goods were duly delivered to the Defendant's address at Castle Peak Road and the Plaintiff had issued an invoice No. 46353 dated 20 June 1997 in respect of the goods delivered. The Defendant then arranged to have someone to hand carry the goods to this address at Sha Tau Kok.

49. I have attempted to summarise the main parts of the evidence of the various witnesses. It is quite apparent that there were conflicts between the evidence given by Mr Chu on the one hand and Ms Oong and Ms Chan on the other. Having had the opportunity of watching the various witnesses giving evidence, and having considered their evidence in the light of the undisputed documents and also the inherent probabilities of the matter, I have come to the view that none of the witnesses was a witness of the whole truth. It is quite plain to me that all the witnesses had in some way or another tried to tailor his/her evidence in order to suit the case of the parties for whom he or she gave evidence. On the totality of the evidence before me, I make the following finding of facts:

(a) The Plaintiff first contacted the Defendant through the introduction of Ms Mo of Nam Hing. The introduction was effected sometime in early 1997. I am not convinced by the evidence of Ms Chan that in fact the introduction was effected in 1996 and that there were transactions between the Plaintiff and the Defendant in 1996. No contracts or invoices in relation to these transactions were ever discovered, nor had it been put to Mr Chu that in fact there were such transactions.

(b) I also accept the evidence of Mr Chu that Nam Hing introduced the Plaintiff to the Defendant because Nam Hing became aware that the Defendant might be interested in purchasing cables for use in China, and for one reason or another, Nam Hing was not in a good position to supply these cables to the Defendant.

(c) I find that Mr Chu did visit Ms Chan and in his visit he gave 2 price lists to Ms Chan. I do not accept the suggestion that the 2 price lists dated 6 August 1996 and 3 March 1997 were sent by post to the Defendant as a result of any conversation between Mr Chu and Ms Oong discussing about the supply of XLPE cables. It is plain from those 2 price lists that they did not relate to the XLPE cables which Ms Oong was interested. Hence, it would not make much sense for Mr Chu to send those price lists to the Defendant as a result of the initial telephone conversation between him and Ms Oong.

(d) I do not accept the evidence of Mr Chu that before the delivery of the goods under the 1st contract, he had never had any discussion with Ms Oong. I found that Ms Oong did speak to Mr Chu on the supply of cables to the Defendant before the 1st contract was made. I am of the view that it was probable that Ms Oong would have told Mr Chu that the cables were required for the setting up of a generator plant and Mr Chu had indicated that he could supply such cables. However, I do not accept the evidence of Ms Oong that she had gone into the details of discussing with Mr Chu on the IEE regulations and also that she required cables of BS5467 of 1989 and that there must be the supply of a BASEC certificate with the goods.

(e) I also find that at about the same time as Ms Oong's discussion with Mr Chu or shortly thereafter, Ms Chan also called Mr Chu to discuss with him on the supply of the 400 square mm XLPE/PVC cable. I also find that apart from the 400 square mm XLPE/PVC cable, Ms Chan also asked Mr Chu the price of many other types of cables. She also asked Mr Chu to give a quotation for both the 400 square mm PVC/PVC cable and also XLPE/PVC cable to be delivered at Dong Guan. She also asked Mr Chu to give a quotation on 120 mm cable, probably at a different occasion but before Mr Chu had faxed out the quotation to her. This was the reason for Mr Chu's including all the 3 different types of cables and also the delivery charges in the quotation. I do not think that either Ms Oong or Ms Chan had made any specific request that the cable supplied must be in compliance with the British Standard and that a BASEC certificate or a certificate certifying that the goods were in compliance with the British Standard must also be supplied. I consider that if there were in fact such great emphasis on the British Standard requirement, it was unthinkable that the same would not be specifically mentioned in the quotation of 1 May 1997 and later on in the 2 purchase orders. In this respect, I see no reason why Mr Chu would have to deliberately omit any reference to the goods to be supplied being in compliance with the British Standard. It was plain that apart from goods made by SGH in China, in respect of which there was no practical way of obtaining a certificate to show that they complied with the British Standard, the Plaintiff also supplied cables made by foreign companies that were in compliance with the British Standard and the suppliers could easily have supplied a certificate to this effect. At the time of giving quotation, there was no certainty at all as to whether the Defendant would be making any purchase from the Plaintiff. Hence, if there were in fact any mention by either Ms Oong or Ms Chan that the cables required by the Defendant must comply with the particular British Standard and that there must be a certificate furnished to such effect, there would be little reason for Mr Chu not taking that into account in the quotation given. On such scenario, it would be likely that Mr Chu would have given quotation for the supply of some cables made overseas with brand name and which would meet the requirements of the Defendant.

(f) Between 15 May and 20 May 1997, after the first delivery was made there were some telephone conversations between Mr Chu and Ms Oong. I find that in these conversations, Ms Oong had made complaints about the lack of product information relating to the cable and that such information was important to her when making the design for the installation and she did request Mr Chu to supply her with information on the current rating and voltage drop of the cable supplied. I also find that Mr Chu not being able to obtain such information from SGH, decided to give the Defendant the information published by Irish Cable in relation to their similar products. Accordingly he caused the 3 pages current rating documents to be faxed to the Defendant. I accept that he had expressly told Ms Oong that the information he supplied was in relation to another supplier's product. There was little point for him to hide the source of the information as it was plain from the document faxed that there was a logo of another company on the document and the cable he supplied contained no marking or logo. Thus, it would be plain to any recipient of the current rating documents that the documents were not specifically relating to the cable supplied by the Plaintiff.

(g) I find that at the time, the Defendant was happy with the information supplied and was prepared to install the cable using the information supplied in the current rating documents as a reference. It may or may not be the case that the Defendant had made further safety margin allowance to cater for the slightly poorer quality of the cable supplied. Since more cable was required, Ms Oong told Ms Chan to place the 2nd order for further XLPE cable.

(h) I accept that before the issuance of the 2nd purchase order there was at least one conversation between Ms Chan and Mr Chu relating to the goods to be supplied under the 2nd purchase order. However, I do not accept the evidence of Ms Chan that she was specifically told by Ms Oong that the goods must comply with British Standard and that a BASEC certificate or a certificate showing compliance with the British Standard must be supplied. Again, if she did receive such instructions, it is unbelievable that she would have failed to make any specific reference to the British Standard and the certificate requirement in the purchase order. This is especially so in the light of the fact that the goods under the 1st contract were already delivered and that the goods showed no marking on them showing that they were of the British Standard or any standard and that the Plaintiff had not delivered any BASEC or other certificate showing compliance with British Standard. I do not think that Ms Chan would have simply acted on the faith that Mr Chu had made a verbal promise that the goods would comply with the British Standard and that a certificate showing compliance would be delivered.

(i) Likewise, when Ms Chan placed the verbal order (the 3rd contract), I am of the view that she had not specified that the 400 square mm XLPE/PVC cable supplied must be of the British Standard and that there should be a BASEC certificate or a certificate showing compliance to be delivered by the Plaintiff.

(j) I accept the evidence of Mr Chu that after the delivery of the cable under the 3rd contract, he was then told by Ms Oong of the Defendant that the Defendant would require to have proof that the cable supplied would meet the British Standard. It may well be the case that at the beginning the Defendant had thought that so long as the cable used would be suitable for the purpose for the generator installation, it would not matter that there was no formal documentary proof to show the product quality of the cable used. However, for one reason or another, the situation had changed and that someone not under the Defendant's control would require that not only must the cable be actually suitable and safe but there must also be documentary proof that the cable used must comply with the British Standard. However, there is no direct evidence before me as to why the Defendant suddenly require documentary proof that the cable supplied must comply with the British Standard. In fact for the purpose of my decision, it is not necessary for me to reach any conclusion as to the exact reason.

(k) I find that in the conversations between Mr Chu and Ms Oong between the delivery of the goods under the 3rd contract and 17 June 1997, Ms Oong had told Mr Chu that if there was no document to show that the cable supplied would meet the British Standard the Defendant would not get paid and in consequence of which the Defendant would also not pay the Plaintiff. I also find that in those conversations, Ms Oong and Mr Chu had tried to work out various ways of obtaining "documentary proof" that the cable was of British Standard. It was in those circumstances that both Ms Oong and Mr Chu agreed that a certain statement to be made by the supplier be drawn up in order to mislead the person who wanted to have the documentary proof that the cable was of British Standard. In this respect, I am unable to conclude whether the suggestion of having such a statement originated from Ms Oong or from Mr Chu. I do not think that it matters.

(l) I find that Mr Chu faxed the Chinese Certificate to the Defendant hoping that it could be of some assistance to the Defendant to convince "other person" that the cable supplied was safe.

(m) I do not accept the evidence of Mr Chu on the circumstances of Ms Chan supplying the address of "沙头角鹽田根斗嶺工業区第一幢". In this respect I accept the evidence of Ms Chan that the address of "沙头角鹽田根斗嶺工業区第一幢" was supplied by her as the address for the delivery of goods under invoice No. 46353 dated 20 June 1997. I note that in fact the address stated on the document eventually delivered to Ms Oong purportedly signed by Wing Tai did not in fact bear the address of "沙头角鹽田根斗嶺工業区第一幢". I could not see how the characters "根斗嶺" could be translated or romanised as "Tun Hou Ling".

(n) I do not accept that the Plaintiff had faxed the document under the heading "Schedule of Certified Cables" to the Defendant. If the Plaintiff had done so, the Defendant should be able to produce the original fax copy which would in all probabilities bear the Plaintiff's fax header. As it is, the only copy produced in the trial was a copy showing that it was faxed from the Defendant's fax machine on 28 June 1997.

(o) I do not consider that the Plaintiff's solicitor's letter dated 12 September 1997 addressed to SGH would constitute any admission or evidence to show that there was a contractual obligation on the part of the Plaintiff to the Defendant that the cable supplied under the 3 contracts was of British Standard, let alone an obligation to supply a BASEC certificate or a certificate to show compliance with British Standard. It is clear from the letter that the purported claim against SGH by the Plaintiff's solicitor was based on the allegation that the price list of SGH specified that the goods were of British Standard. It is however clear that the XLPE cable supplied to the Defendant was not found in the price list of SGH. In short it appeared that the claim by the Plaintiff against SGH as formulated in the letter was entirely baseless.

50. On my finding of facts, I am of the clear view that there was no express term in any of the 3 contracts between the parties that the XLPE cable supplied must be of the British Standard. This would be so whether the 1st and the 2nd contracts were contracts evidenced solely by the 2 purchase orders or whether they were contracts made partly oral and partly in writing. It must also follow that there was no express term that the Plaintiff must supply the relevant BASEC certificate or other certificate or documentary proof that the cable did comply with the British Standard. It must also follow that there could be no collateral contract that the Plaintiff had agreed that the cable supplied must comply with the British Standard and that a BASEC certificate must be supplied.

51. In case I am wrong on my view on the facts about the contents of the discussions between Mr Chu of the Plaintiff and Ms Oong and Ms Chan of the Defendant, I am still of the view that the 1st and the 2nd contracts were contracts contained in or evidenced by the 2 purchase orders only. I consider that it must be the intention of the parties that the discussions were nothing more than preliminary negotiations between the parties before the formal purchase orders were placed. In my view, the parties could not have treated the contents of the discussions between them binding. Thus, if Ms Chan of the Defendant had put in terms in the purchase orders different from those previously discussed between the parties, the parties would have treated the terms of the purchase orders to have superseded the previous discussions. The purchase orders would constitute an offer which would materialise into a binding contract upon the Plaintiff's performance of the terms by supplying the goods or upon the Plaintiff's informing the Defendant that the purchase orders were accepted. It must also follow that even if I had taken the view that either Ms Oong or Ms Chan or both of them had indicated that the Defendant would require cable in compliance with the British Standard, there was still no basis for holding that there was any express term in the 1st and 2nd contracts that the 400 square mm XLPE/PVC cable under the 2 contracts must comply with the British Standard. Similarly it must also follow that even if I had taken the view that Ms Oong or Ms Chan had mentioned that the Defendant would require a BASEC certificate or a certificate to show that the cable would comply with the British Standard, there was no basis for saying that the contracts contain such terms requiring the Plaintiff to supply the BASEC certificate or the certificate showing compliance with the British Standard.

52. As to the 3rd contract, I hold the view that the parties intended that the same terms of the 1st and 2nd contracts would mutatis mutendus apply to the 3rd contract. It must also follow that the 3rd contract would not be subject to the terms that the goods supplied must comply with the British Standard or that a certificate to such effect or a BASEC certificate would have to be supplied.

53. Since I hold against the Defendant on express terms, I am of the view that the Defendant could not succeed on implied terms on the facts of the present case. A term is not to be implied simply it would have been reasonable to do so. On the facts of the present case, there was no suggestion that the cable supplied by the Plaintiff was not suitable for the purpose of being used in connection with a power plant. Indeed, it was not suggested in evidence that the cable was not in fact of such quality that it would not meet the British Standard. I see no basis for any suggestion that there should be an implied term that the goods must meet the British Standard, and I can see even less reason for suggesting that there should be an implied term that the Plaintiff must furnish to the Defendant a BASEC certificate or a certificate showing that the goods must meet the British Standard.

54. In relation to the claim under collateral contracts, it is my view that on the facts of the present case the claim must fail. This is so even if I had taken the view that in the discussions between Mr Chu of the Plaintiff and Ms Oong and Ms Chan of the Defendant, there was mention that the Defendant would like to have cable complying with the British Standard and also would like to have documentary evidence to show such compliance. This is because in my view the parties did not intend to create a contractual relationship by way of a collateral contract. If the parties had wanted a contract for the supply of goods meeting the British Standard, I take the view that they would have done so by expressly stipulating such requirement in the purchase orders. The Court would look with suspicion the allegation of a collateral contract, the effect of which was merely to vary the terms of the main contract. The law in this respect is well summarised in the speech of Lord Moulton in Heilbut Symons & Co. v. Buckleton [1913] AC 30 at 47:

"Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contracts, are therefore viewed with suspicion by the law. They must be proved strictly. Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties to them must be clearly shown. Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject matter."

55. This well known quotation from the speech of Lord Moulton was approved and adopted by the Privy Council in Universal Dockyard Ltd. v Trinity General Insurance Co. Ltd [1989] 2 HKLR 160, and also by the Court of Appeal in Bank of India v Surtani Murlidhar Parmanand t/a Ajanta Trading Corp. [1994] 1 HKC 7.

56. Further on the evidence of Ms Oong, at all material times she was well aware that the cable supplied was not made by Irish Cable and was not under the brand name of Irish Cable. There was simply no evidence before me to show that the cable supplied did not conform with the current rating information stated in the current rating documents. Accordingly the counterclaim by the Defendant for misrepresentation also failed.

57. Accordingly there must be judgment for the Plaintiff for the sum of $223,410.00, being the price of the 2nd and 3rd contracts and also for the agreed amount of $94,040.00, being the sum outstanding in the 6 invoices. In exercise of my discretion I will also award interest on the judgment sum at the rate of 1% above the prime rate from the date of the writ to the day of handing down of this judgment. The counterclaim is dismissed. I will also make an order nisi that the Defendant is to pay the Plaintiff's cost of this action.